Can A Trade War Lift Gold Prices?

Gold bugs refuse to be sidelined, and despite gold’s slip on Monday due to the strengthening dollar, bullion bulls are still hedging their bets that the looming specter of a major global trade war and inflation will give them the last laugh.

After all, fundamentally, gold looks great. But fundamentals don’t seem to be enough.

The market has become immune to the monetary and geopolitical disasters that used to make gold spike as the darling of safe haven assets.

The market does appear to be interested in inflation and the Fed’s plans to raise interest rates at least three times this year, and maybe more. So far, though, while it’s slammed equities and removed 1,100 points from the Dow as of close on Friday, it hasn’t helped gold at all.

Some believe gold bugs will have the last laugh when inflation hits 4 percent—and we won’t even need a trade war. But others say that the relations between inflation and gold, historically, isn’t that strong. Today, when inflation starts to get out of control, the Fed will raise interest rates to tame it, which would have a negative impact on gold.

That leaves the trade war as the most compelling case for gold right now, following Trump’s announcement last week that he plans to slap a 25-percent tariff on imports of steel to the U.S., and a 10-percent tariff on aluminum.

It’s not about the steel or the aluminum, per se—it’s about what the rest of the world will do in response.

While the U.S. market was still asleep, Italian elections and spiraling trade war fears did manage to boost gold slightly, with spot prices touching—very briefly—their highest since February 27th. No sooner were the headlines out, though, and gold dipped back down 0.2 percent, to $1,320.01 per ounce.

And not all fundamentals are working in its favor. Australia’s second-largest producer announced on Sunday that its gold output may spike thanks to new projects coming online in record numbers, Reuters reports.

The dollar, too, is not operating in gold’s favor. Rallying cries for gold on the basis of a weak dollar make for good headlines that don’t have legs.

All in all, Kitco expects a stronger dollar to ‘weigh on gold’ for the month of March.

Short of a trade war actually coming to fruition, there are plenty of bears in the gold woods. But the bulls have stamina. Kitco took a survey: